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CAMPBELL BROWN, CNN ANCHOR: Welcome, everyone, I'm Campbell Brown. Iran is not building a bomb, or so says a long-delayed National Intelligence Estimate or NIE for short.

The NIE is the gold standard of intelligence, the conclusions of all the government's best brains.

More than two years in the making, the latest NIE says Iran quit trying to develop nuclear weapons in 2003, and that challenges just about all our assumptions about the Iranians. So no wonder official Washington sounds confused. Listen to this.

(BEGIN VIDEO CLIP)

STEPHEN HADLEY, NATIONAL SECURITY ADVISER: On balance, the estimate is good news.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Iran was dangerous, Iran is dangerous, and Iran will be dangerous if they have the knowledge necessary to make a nuclear weapon.

(END VIDEO CLIP)

BROWN: We are witnessing the latest and perhaps strangest twist in a relationship that has bedeviled the United States since Iran's Islamic revolution in 1979.

Well, it's time to separate fact from fiction. No matter how you look at it, the new NIE about Iran is big news. Either America's intelligence community is correcting a big mistake, or it's getting something really important wrong again.

(BEGIN VIDEOTAPE)

BROWN (voice-over): It takes an especially pure form of uranium to make a nuclear bomb and Iran has been working for years to enrich uranium. They say it's for peaceful purposes. A lower quality, good enough to produce fuel for nuclear power plants.

President Bush thinks otherwise. In 2002, he memorably lumped Iran with North Korea and Iraq and staked his legacy on doing something about them.

BUSH: States like these and their terrorist allies constitute an axis of evil arming to threaten the peace of the world. BROWN: Fast forward to December 3, 2007. One of those rare Washington moments when one sentence changes everything.

HADLEY: The intelligence community has high confidence that Iran halted its covert nuclear weapons program in the fall of 2003 and they have moderate confidence that it had not restarted that program as of mid-2007.

BROWN: It was a startling revelation. After all, the president had just said this in mid-October.

BUSH: If you're interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon.

BROWN: Tough rhetoric, but why did the president say that? By his own admission, he was given a heads up last summer by his intelligence chief.

BUSH: Mike McConnell came in and said we have some new information. He didn't tell me what the information was. He did tell me it was going to take a while to analyze.

BROWN: So now that the analysis is in, can we still trust the intelligence?

BUSH: I still feel strongly that Iran is a danger. Nothing's changed.

But in the wake of the intel fiasco in Iraq, the U.S. intelligence system has changed. And John Bolton, a former Bush U.N. ambassador, doesn't think we can trust with this restructured intelligence community is saying.

JOHN BOLTON, FORMER U.N. AMBASSADOR: The intelligence community is like generals fighting the last war. They got Iraq wrong and they're overcompensating by understating the potential threat from Iran.

BROWN: But Nuclear Proliferation Expert Joe Cirincione says the new intelligence is believable.

JOSEPH CIRINCIONE, NUCLEAR PROLIFERATION EXPERT: I've never seen a National Intelligence Estimate like this that is so candid about the mistakes it made in the past and that's so direct in warning that the military option really won't work with Iran.

BROWN: The new National Intelligence Estimate was also huge news in Iran. It's outspoken President Mahmoud Ahmadinejad almost immediately proclaimed, quote, "a declaration of victory for the Iranian nation against the world powers."

And Iran's top nuclear negotiator is even more blunt.

UNIDENTIFIED MALE (through translator): We hope that in the future reports they will tell the nation that other accusations are without foundation too.

BROWN: There's no doubt the new intelligence puts U.S. allies in a tough spot. The White House has been pressing for tougher economic sanctions until Iran stops uranium enrichment. Former U.S. Weapons Inspector David Kay believes that will be a hard sell.

DAVID KAY, FORMER U.S. WEAPONS INSPECTOR: There's an immediate credibility gap here and I think you're going to see it when the security council gets around to discussing whether anyone will agree to additional sanctions.

BROWN: So far the president isn't budging and neither is Iran.

(END VIDEOTAPE)

BROWN (on camera): The only Western TV reporter in Tehran is CNN Aneesh Raman, who joins me now.

Aneesh, We heard Ahmadinejad declare victory essentially, but what generally has been the reaction from Iranians you've talked to?

ANEESH RAMEN, CNN MIDDLE EAST CORRESPONDENT: At best it's been subtle vindication. You know, even the hardliners who backed the president weren't out on the streets rallying against the West in what would have been an opportune moment to do so.

And I think this happened for two reasons. One, the mullahs (ph) that run this country are holding back the bluster. They're hoping the report speaks for itself and gets Russia and China to keep sanctions away at the U.N. Security Council.

But on the street, as Tip O'Neil (ph) said, from my home state, all politics is local and here the biggest issue is the economy. Inflation is high, unemployment is high. And for the first time -- and we've been coming in here about a dozen trips -- we got someone on camera to tell us, you know what? Maybe Iran for the sake of itself should suspend this program. It has a right not to pursue all it's rights. It would end the debate and the sanctions. So Iranians are weighing a cost benefit analysis of pursuing this.

But the president's claim of victory, we didn't see it on the streets. We saw it, as I said, at best sort of subtle vindication, but no real hope that this will change much.

BROWN: Well, Aneesh, that's what I was going to follow up on. Does anyone think it's really going to change the relationship with the U.S., especially also when you have President Bush saying that Iran is still very much a threat?

RAMAN: And that is really key. Because we have seen something interesting in the past few months. The reformants (ph) and moderates here were starting to openly criticize President Ahmadinejad about how he was pursuing this nuclear policy. Everyone here agrees Iran has the right to nuclear energy, but they felt his controversial statements about Israel, about the West were fueling the fear about Iran's intentions. He was also starting to call people traitors inside Iran. They were coming out, but Bush not changing his position only helps Ahmadinejad rally his base.

BROWN: All right, Aneesh Raman for us in Tehran tonight, thanks.

You might think the U.S. and Iran could ever see eye to eye on anything, let alone work together. Well, surprise, it has already happened. Next, find out where and how it went.

And then later, a back channel memo and perhaps a missed opportunity.

(COMMERCIAL BREAK)

BROWN: One fact that may surprise you about the U.S. and Iran -- it was only a few years ago that both countries were allies against the Taliban.

Iran shares a 600-mile border with Afghanistan. It's clear what happens there is crucial to Iran's security. So how did we get from teamwork to brinksmanship?

Special Correspondent Frank Sesno explains.

(BEGIN VIDEOTAPE)

FRANK SESNO, CNN SPECIAL CORRESPONDENT (voice-over): After 9/11 the two countries worked together in Afghanistan to defeat the Taliban and rebuild the Afghan government.

I get the story from the Bush administration's special envoy to Afghanistan at the time, James Dobbins.

(on camera): So you and the Iranians were meeting multiple times a day?

JAMES DOBBINS, BUSH ADMINISTRATION'S SPECIAL ENVOY TO AFGHANISTAN: Yes.

SESNO: And the Iranians were cooperating with you?

DOBBINS: They were cooperating -- their objectives were largely the same as ours. They had after all been fighting the Taliban long before we were.

SESNO: So the point is, you were doing business, real business, with the Iranians?

DOBBINS: Absolutely.

SESNO (voice-over): Dobbins remembers it all well.

In the fall of 2001 during the U.S. military campaign in Afghanistan, Iran cooperated on the ground providing vital information and safe passage of humanitarian supplies. Afterward, it worked alongside the U.S. to establish a constitution and the government of Hamid Karzai. Along the way, an offer that really took Dobbins by surprise.

DOBBINS: Iran was prepared to participate in a program to assist the creation of a new Afghan national army under U.S. leadership.

The Iranians would be prepared to house, clothe, equip and train as many as 20,000 recruits as part of a broader American-led effort.

But the fact that they proposed that their army and our army would collaborate under American leadership in a joint program to train the national Afghan army was a pretty breath-taking offer.

SESNO (on camera): Here you are in (UNINTELLIGIBLE) having these conversations with the Iranians, the Iranians are cooperating. You thought there was a moment here.

DOBBINS: The Iranians clearly wanted to expand this dialogue to other issues.

SESNO: What did they say, exactly? What other issues, exactly?

DOBBINS: They were -- they were ready to discuss the Middle East peace process, their role with the Palestinian authority and with the Palestinians, support for terrorism.

SESNO: They told you this?

DOBBINS: They said they were prepared to discuss the other issues on the U.S. agenda.

SESNO (voice-over): What did you do with that information?

DOBBINS: I passed it back to Washington.

SESNO: What response did you get to that memo?

DOBBINS: None.

UNIDENTIFIED MALE: Mr. Speaker, the president of the United States.

SESNO: Hardly surprising because just days before Dobbins sent his memo to Washington, President Bush had made it clear there would be no cooperation with Iran, calling it part of an...

BUSH: Axis of evil, arming to threaten the peace of the world.

HILLARY MANN, IRAN AND AFGHANISTAN SPECIALIST, NATIONAL SECURITY COUNCIL: I was surprised.

SESNO: Hillary Mann was the Iran and Afghanistan specialist at the National Security Council.

MANN: I was surprised about the axis of evil. SESNO: Did you not know that was going to be...

(CROSSTALK)

MANN: I did not know that.

SESNO (on camera): How is it is that the director of Iran and Afghanistan at the National Security Council is surprised by the president standing up in front of the country, calling that country part of the axis of evil?

I didn't think it had to be that way. I thought that the Iranians that we dealt with were honest.

We were the superpower, we were at the height of our power after 9/11 and we could have done so much more.

BUSH: These regimes pose a grave and growing danger.

SESNO (voice-over): Despite what had happened in Afghanistan, Iran was now on notice -- it was the enemy.

BUSH: Or attempt to blackmail the United States.

(END VIDEOTAPE)

BROWN: Frank, as you know, many skeptics will say that Iran and Afghanistan was really acting in its own self interest. They hated the Taliban. They were there for their own reasons and their own purposes, fair?

SESNO (on camera): Fair enough. And as Dobbins says, long before the United States was -- it was the United States that was joining an alliance, not bringing together an alliance.

One of the things Dobbins says is a myth to think that the United States of America went in and pulled together a coalition and then toppled the Taliban. Quite the contrary. The United States joined a coalition that was already in place and the Iranians were probably the most important part of that.

BROWN: Is it also fair to be skeptical of any overtures given that Iran was still doing a lot of bad things, they were supporting Hamas, they were supporting Hezbollah.

SESNO: It is utterly naive to think that Iran was about to change its spots and that all those activities you talk about, and others, are simply going to fade away.

But what is a fact is what Dobbins was hearing on the ground was very, very significant. And it was the early feelers from Iran, trying to determine whether there was some room to move, to negotiate, to talk, to get something back from the United States. And as Dobbins makes clear, there was nothing coming back.

BROWN: And I have to say, the level of cooperation on the ground really was pretty stunning, as was the miscommunication or lack of communication that seemed to be going on between Bush administration officials.

What was most surprising to you in your reporting?

SESNO: Most surprising is that after 9/11, according to people -- several people who were there, the tone from Iran changed. They had preconditions before they would talk to the United States and they told the United States, several representatives, diplomats, we're ready to discuss and to talk now. Come over to (UNINTELLIGIBLE), come over to Afghanistan where this whole package is being put together, and you see this sweep of opportunity in the words of some where there really could have been not just progress on the ground, but progress well beyond.

What surprised me was the degree of cooperation that went into the negotiations over the new constitution, for example. Dobbins says it was the Iranians who proposed free elections. They were the first ones to say you got to put that in their constitution. He said they were pulling my leg a little bit, but it was really remarkable.

BROWN: It was remarkable.

All right, Frank, thanks.

When we come back, a controversial memo from Tehran to Washington. Was it a missed opportunity?

(END VIDEOTAPE)

RANDI KAYE, CNN CORRESPONDENT: I'm Randi Kaye in New York.

"Iran: Fact and Fiction" continues in a moment. But first, a look at the headlines.

Angry Democrats are accusing the CIA of a cover up and calling for an investigation into the destruction of at least two videotaped interrogations of al Qaeda suspects.

Yesterday "The New York Times" was first to report the recordings were made in 2002 and then destroyed in 2005.

Today, White House officials said that President Bush and Vice President Cheney were first told about the tapes yesterday during a briefing.

Two senior administration officials tell CNN that former White House Lawyer Harriet Miers was aware of the tapes before 2005 and told the CIA not to destroy them.

Police the Nebraska release these chilling surveillance photos today showing Robert Hawkins just moments before he began his deadly shooting spree in an Omaha mall. He killed eight people, then took his own life. They also released a suicide note to his family. He wrote, quote, he "just snapped" and that he couldn't, quote, "take this meaningless existence anymore."

We also heard from more victims' families -- Janet Jorgensen's granddaughter said this today:

(BEGIN VIDEO CLIP)

ANDREA HUSK, VICTIM'S GRANDDAUGHTER: Grandma is really here with us. And she would be upset with us if we didn't go on and make it the best Christmas just like every other Christmas and she, like I said, she just wouldn't want it any other way.

(END VIDEO CLIP)

KAYE: Barry Bonds pleaded not guilty in his first court appearance with being charged with lying under oath about using steroids. Baseball's home run king said little during a 30-minute hearing, leaving most of the talking to one of his six lawyers. If convicted, he could spend up to 2-1/2 years in prison.

I'm Randi Kaye in New York. Now back to "Iran: Fact and Fiction."

(COMMERCIAL BREAK)

BROWN: With the White House dropping phrases like World War III in connection with Iran, you might be shocked to hear this. In 2003, some believes the U.S. may have passed up a chance to make a deal with Tehran.

Here again, Special Correspondent Frank Sesno.

(BEGIN VIDEOTAPE)

SESNO (voice-over): In 2003, there was a back channel memo. Iranian officials helped write it. There's no letterhead. No signature. No fingerprints. In the diplomatic world, they call it a nonpaper (ph). It came through a Swiss intermediary.

Was it as it's been called a grand bargain? Or was it a fraud?

Ask that question around Washington and you hit a raw nerve.

DANIELLE PLETKA, AMERICAN ENTPERPRISE INSTITUTE: I find this 2003 memo a wonderful instance of dishonesty on the part of advocates of a particular policy in the United States.

Iran has been moving progressively forward on the its nuclear weapons programs for the last 20-plus years. The suggestion that somehow they were going to decide that their national interests were different because of some memo which actually was never real, really seems to me to be a stretch.

SESNO: But when I go to see people who saw the document back then, I get a very different story. Secretary of State Colin Powell's Chief of Staff Larry Wilkerson thought the memo was credible and was struck by what it said.

LARRY WILKERSON, SECRETARY OF STATE COLIN POWELL'S CHIEF OF STAFF: Iranian aims: Halt U.S. hostile behavior. Work for a democratic and fully representative government in Iraq. Access to peaceful nuclear technology -- this is what they want.

SESNO (on camera): U.S. aims: Full transparency on weapons of mass destruction. Decisive action against terrorists including al Qaeda. Middle East: Stop material support for Palestinian opposition groups. Those were the U.S. aims?

WILKERSON: Right.

SESNO: This is -- this is what you saw?

WILKERSON: That's the gist of what I saw, yes.

SESNO: You took it seriously?

WILKERSON: I took it seriously. First thing I thought was, my gosh, this is a great opportunity, we should take advantage of this.

SESNO: What actually happened?

WILKERSON: Oh, what actually happened, it got stopped. It got stopped in its tracks.

WILKERSON: Who needs to negotiate with a regime that's scared to death that you might attack it next. Keep it in that position and, you know, maybe you'll get regime change.

SESNO: Remember the times -- spring 2003, America was riding high, Saddam was gone and the region was to be transformed. The memo went nowhere.

(on camera): How do you put that into perspective now?

WILKERSON: I think it was a very stupid move. I think it was indicative of our diplomatic approach at that time, which was -- regardless of what Colin Powell tried to do to the contrary, essentially we don't talk to our enemies, we change them.

SESNO (voice-over): I go to the State Department and see Undersecretary of State Nicholas Burns. He wasn't in charge of Iran then, but he is today.

(on camera): Why didn't the United States return the call in 2003 when this thing was circulating?

NICHOLAS BURNS, STATE DEPARTMENT UNDERSECRETARY: You know, in diplomacy, 2003 is ancient history. It's four years ago and I was not involved in Iran policy. If there was a memo, I never saw it.

So, you know, we can't just focus on all of these slights and sins of the past. We've got to focus on the present day.

SESNO: Will you sit down, no preconditions, no strings attached, and have this conversation?

BURNS: The United States, Russia, China and Europe have offered to sit down if Iran will suspend its nuclear programs (UNINTELLIGIBLE). That's a fair offer. There is no disinclination on the part of our government to sit down with them.

SESNO (voice-over): But the Iranian regime has refused to stop enriching in exchange for talks. Instead, they have added to their nuclear program, gotten more involved abroad and more repressive at home.

(on camera): How does one do business with a country where people are routinely put in prison for speaking out on the street, where students are rounded up because they publish a newspaper, where the president of the republic is constantly threatening another country with annihilation?

WILKERSON: Same way you do business as Richard Nixon and Henry Kissinger did with Beijing in 1972. The Soviet Union put missiles 90 miles off of Florida coast, but we still talked to the Soviet Union.

My position is that it's more important to talk do your enemies than it is to your friends.

(END VIDEOTAPE)

BROWN: And Frank, this memo happened in 2003, also the year we now know, according to the NIE, that Iran stopped its weapons program. The timing is especially interesting.

SESNO (on camera): The timing may be more significant than the substance in this case because the Iranians were clearly feeling the heat. They looked next door and they saw the United States in Iraq. They wondered and worried that they were going to be the next stop. So they were turning off the switch on their nuclear weapons program and they were turning on the switch, potentially, on an overture to have broader talks.

BROWN: Let me bring in now Trita Parsi, who is the president of the National Iranian American Council and the author of "Treacherous Alliance: The Secret Dealings of Iran, Israel and the United States."

Welcome to you.

TRITA PARSI, PRESIDENT, NATIONAL IRANIAN AMERICAN COUNCIL: Thank you for having me.

BROWN: I know you believe that the memo is authentic. What do you make of the Bush administration's handling of it? PARSI: Well, I think when we look at the past, we're going to see a lot of missed opportunities between the two countries -- opportunities that Iran has missed and opportunities that the United States has missed. But this is by far the greatest missed opportunity and unfortunately it was missed by the Bush administration.

BROWN: In terms of the way they handled it?

PARSI: Absolutely. Because there wasn't even a response given to the Iranians. Instead, the Swiss ambassador to Tehran, who had been tasked by the U.S. government to be the go between between the two governments and exchange messages, was reprimanded for having delivered it in the first place. That's a terrible signal to send when a peace offer is being made.

BROWN: So what about now, with the NIE, do you see this as another potential opportunity?

PARSI: Absolutely. Because this has shifted everything. This has pulled the rug under the feet of those in the administration that want to pursue a very bellicose approach towards Iran.

And if we miss the opportunity now to be able to reassess our policy, the signal we are sending is that no matter what the facts are, we're still going to stick with a very, very aggressive policy.

BROWN: All right. Thank you, appreciate your time.

PARSI: Thank you so much.

BROWN: With a different point of view, joining me now, someone you saw in Frank Sesno's report, Danielle Pletka, of the American Enterprise Institute.

Welcome. Thanks for joining us.

PLETKA: Thank you.

BROWN: I know you have a very different take on this and you voice real doubts about the legitimacy of the memo, correct?

PLETKA: Well, I did. And all I can go by again is the fact that it wasn't the U.S. government that disciplined Tim Guldimann, the then ambassador -- Swiss ambassador to Tehran, it was the Swiss government. He -- I understand, from Swiss friends, was subsequently let go from his job. That's usually not a vote of confidence in someone's diplomatic capacities.

BROWN: But why wasn't it worth taking a look at, having some discussion about?

PLETKA: I don't -- I think that everything is absolutely worth taking a look at. I think it's always realistic, however, to deal on the basis of reality, not on the basis of fabrication.

Much like the discussion that people are having now about the National Intelligence Estimate, welcoming the idea that there's a reassessment, welcoming the idea that in their view there's an injection of reality and wanting to deal on the basis of that. So, too, with that memo, I think many people felt that it was important to deal on the basis of reality rather than on memos that were drafted by, you know, Swiss people.

BROWN: Danielle, in light of the new NIE, what is your reassessment? Do you see any sort of path that may be open for diplomacy now?

PLETKA: Well, first of all, I think it's very unfair to suggest that there hasn't been diplomacy. I would say that the United States has been very forward leaning, but even more, our alliance and Europe have been more than generous in their offers to Tehran, to sit down and discuss. Javier Solana (ph), the European -- almost foreign minister -- has been meeting regularly and to his great frustration with Iranian officials again and again and again. There have been generous offers made about possible agreements, about trade concessions. Really, I think that it's unfair to suggest that no one has been talking to the Iranians.

(CROSSTALK)

BROWN: ... the Bush administration and the Iranians?

PLETKA: Well, I think Ryan Crocker, our ambassador in Baghdad who is sitting down on a regular basis with his Iranian counterparts would certainly disagree with you.

I know that (UNINTELLIGIBLE), our ambassador to the United Nations, who has also sat down regularly with Iranian officials would also disagree.

Again, I think it's a little bit of a myth. It's important to understand what the truth is.

BROWN: For a different perspective, thank you, Danielle. Appreciate your time as well.

The U.S. is not the only inflexible partner in this tortured relationship, as we pointed out.

When we come back, a huge Iranian snub.

(COMMERCIAL BREAK)

BROWN: Welcome back, everyone.

Even if the White House suddenly changes course and decides to negotiate with Iran, there are no guarantees.

Special Correspondent Frank Sesno looks at what happened the last time the U.S. tried to warm up to Tehran.

(BEGIN VIDEOTAPE) SESNO (voice-over): It was the spring of 1997 Reform was in the air. The moderate Mohammad Khatami (ph) had just been elected Iran's new president. Young people, the middle class had spoken.

Though the hard line mullahs (ph) still held ultimate power, Khatami (ph) had a mandate and wanted a new beginning for Iran, including better relations with the West. He actually praised America. It was an unprecedented olive branch.

And in Washington, U.S. Secretary of State Madeleine Albright concluded Khatami (ph) was for real, so she started speaking out.

MADELEINE ALBRIGHT, FORMER U.S. SECRETARY OF STATE: We fully respect Iran's sovereignty. We understand and respect its serious desire to maintain its independence.

SESNO: Seeking to further the dialogue of civilization that Khatami (ph) had offered.

ALBRIGHT: I tried to mirror some of the very points that he had made, laying out what I thought was a road map that could lead to normalized relations if in fact they gave up their support of terrorism and their desire to have weapons of mass destruction.

SESNO (on camera): So this was a deliberate diplomatic dance that you were doing?

ALBRIGHT: Definitely. It's one of the more interesting ones, Frank, because it was a real diplomatic kind of (UNINTELLIGIBLE).

SESNO (voice-over): There was a series of American gestures. Visa restrictions were relaxed, there were visits from Iranian scholars, American wrestlers went to Iran. It had been done before.

ALBRIGHT: After all, one of the ways that we had broken down the walls between us and China was through ping-pong diplomacy, so that was an attempt to do that.

SESNO: The hostage crisis some two decades earlier when American diplomats were held for 444 days, had left a bitter legacy. Severe sanctions were part of that.

ALBRIGHT: We began to ease some of them up in terms of some food stuffs that the Iranians could buy. Medicines.

SESNO: Then in March 2000, an extraordinary speech, an apology for American interference in Iranian affairs.

ALBIRGHT: The United States must bear its fair share of responsibility for the problems that have arisen in the U.S. Iranian relations.

SESNO: It was a risky move in a perilous relationship.

I pay a visit to Ken Pollack (ph), who at the time handled the Iran account at the National Security Council. (on camera): So you make all these gestures and you make all these speeches, and you make all these statements, and what comes back in return?

KEN POLLACK: Bumpkins (ph). Instead, what we get from the supreme leader is a speech that condemns the U.S., that condemns our gestures, that basically ignores everything that we did and ignores the apologies which he had been demanding.

SESNO: Was there a key lesson you took out of that whole experience?

POLLACK: What we came away from was a recognition that the Iranian political system remains extremely complicated and extremely bound up and tied up in knots over this issue of the relationship with the United States.

SESNO (voice-over): A decade later, this episode looks especially discouraging. The hard line mullahs (ph) who had the power in Iran had little interest in improved relations with America and outflanked the reformers.

Iran's factional politics doomed Washington's overture.

ALBRIGHT: The main problem, really was, it was very hard to assess what was in their heads and the way they were behaving. I think that none of us quite understood -- or even to this day anybody understands -- all the dynamics within Iran itself.

SESNO: Which is what makes this crisis so dangerous and the consequences of conflict so hard to predict.

(END VIDEOTAPE)

BROWN: And back with me, Trita Parsi and Frank Sesno.

And Trita, I think one of the real challenges is it's so difficult to know who to talk to in Iran. Are there -- do you believe that there are real partners there that are worth engaging with?

PARSI: Without a doubt because we have seen that the corporation has taken place in the past like in Afghanistan and in other places.

Iran has a very, very complicated political system and they even have a policy -- a deliberate policy -- that they call simulated irrationality. They want the outside world to be guessing about things are decided inside of Iran.

But if there's one thing we can take away from the past overtures of the United States that unfortunately didn't go anywhere because the Iranians missed the opportunity, is that we cannot reach out to just one segment of the Iranian government and then expect that the other segment will not do everything it can do to undermine that effort.

BROWN: Frank, elaborate on that and explain the psychology a little bit because I guess this goes back a long way in terms of what drives them and why they feel the need to have a nuclear deterrent?

SESNO (on camera): I think the greatest lesson is -- and Trita touched upon it -- this is not going to be a straight line. There isn't one faction, there isn't one person you can go to. Ahmadinejad who is the president now is going to be a much harder case to talk to if anybody wants to talks to him. It's not going to be Khatami (ph). The moderates aren't in control. And so it's going to be much, much more difficult.

But the psychology is deep-seated. The Iranians repeatedly point to America's intervention in 1953 when the CIA overthrew a prime minister. They point to their support for the Shaw through all those years. They point to the American support of -- for Saddam Hussein when he was gassing Iranians on the ground. And the -- and the Iranians will say, international conventions, the United Nations, nobody did us any good then, we're on our own, we need our own deterrents. Not only do we not trust you, we know you have done us real harm in the past.

BROWN: So both of you, how do you -- how do you interpret what they're saying now? Their reaction to the NIE, Iran, is basically, they're not going to stop what they're doing and they really have no interest in talking? How do you interpret...

(CROSSTALK)

PARSI: Well, the NIE, in many ways has strengthened their position. They are continuing to do enrichment, which by the way, is not prohibited by the (UNINTELLIGIBLE), so they have a right to be...

(CROSSTALK)

BROWN: Enrichment with transparency.

PARSI: With transparency, absolutely. And we need to get that transparency. We can't get that transparency unless we have negotiations and we have inspections on the ground far more than we currently do.

And the best way to do so is through the negotiations. And currently, what is preventing the negotiations from taking place more than anything else is the insistence on the suspension precondition.

Right now, with the NIE saying that there's no military program in Iran, the justification for that precondition has basically evaporated.

BROWN: But you're getting a very hard line position from Bush administration. We talked about that obviously. But also Israel, a predictable reaction, saying they give up enrichment or face military action.

SESNO: And guess what? They're not wrong. I mean, you need three things to make a nuclear bomb a real threat. One, you need the weaponizing program. That's what apparently Iran has stopped. Two, you need the highly enriched uranium. They're still proceeding with that. And three, you need a missile or some way to deliver it. They're still working with that. So it's not exactly as if the Iranians have said oh, never mind. We're going to join the community of nations. We didn't mean all this. It's still out there and because of these suspicions and this distrust that's so deep, it's going to take an enormous amount of work to get past that and to get past the threat.

BROWN: Trita Parsi and Frank Sesno, thanks.

And when we come back, a man who has been to Tehran many times and knows as much as anyone about Iran's nuclear capabilities.

(COMMERCIAL BREAK)

KAYE: I'm Randi Kaye in New York.

"Iran: Fact and Fiction" continues in a moment.

But first, a look at the headlines.

In Brussels today, Secretary of State Condoleezza Rice said the United States will continue to press for new sanctions against Iran and demand transparency about its nuclear program while offering talks to sweeten the deal.

Meantime, Defense Secretary Robert Gates is wrapping up a week long trip to the Gulf region and plans to sell Gulf countries in a speech tomorrow they must work together to help the U.S. counter threats from Iran.

If you live along the Atlantic Coast, brace yourself. A noted hurricane forecaster predicts a busier than average season. Dr. William Greg (ph) expects 13 named storms in all, including seven hurricanes, three of them major. He also says it's likely that at least one of those major hurricanes will hit the U.S. coastline. The season begins in June.

Finally, this weekend Oprah hits the campaign trail with Barack Obama, the Democratic presidential candidate she is backing. Tomorrow she will make two stops with Senator Obama in Iowa, then travel to South Carolina and New Hampshire on Sunday. In South Carolina Obama's campaign has moved its rally to a football stadium that can hold more than 80,000 people. That is optimism.

I'm Randi Kaye.

Now, back to "Iran: Fact and Fiction."

BROWN: The International Atomic Energy Agency, the IAEA, is the United Nations nuclear watch dog. And Mohamed ElBaradei is the man in charge. He oversees nuclear inspections in Iran.

Special Correspondent Frank Sesno sat down with him.

(BEGIN VIDEOTAPE) SESNO (on camera): The American's red line, the Israeli red line is that the Iranians should not be allowed to have the knowledge to make a bomb.

How far are they from the knowledge to make a bomb?

MOHAMAD ELBARADEI, OVERSEES NUCLEAR INSPECTIONS IN IRAN: Well, I think Iran pretty much have that knowledge right now. They have been running these centrifuges for like a year and a half right now.

ELBARADEI: Well, I think they want to keep the option of negotiation open.

SESNO: I mean, you think this is a political gesture on their part?

ELBARADEI: I think it is part of a political gesture on their part.

SESNO (voice-over): ElBaradei's take gets a hostile reception in Washington. The Bush administration has long thought he was soft on Iran and that Iran has been playing him for time.

But even before the new National Intelligence Estimate, ElBaradei insisted there was no clear and present danger, because even if Iran had wanted to make a bomb, it was years away.

ELBARADEI: You have to weaponize this -- this material, you have to have to (UNINTELLIGIBLE) the -- the device, you have to have the delivery vehicle. Also, if they have -- even if they have the knowledge, even if they have the capability, as long as they are under agency inspection, they cannot use this method here for a bomb.

SESNO: But there's a lot the IAEA doesn't know. It cannot conduct surprise inspections anywhere it wants. It can't visit Iran's manufacturing sites. It hasn't seen Iran's work on next generation centrifuges.

As a result, the agency said in its November report, it's knowledge about Iran's current nuclear program is diminishing.

ELBARADEI: For example, you know, enrichment, I need to know how many equipments that goes into enrichment is being produced in Iran. I used to get access to the manufacturing facilities. Now I don't. Today, I have been urging them that unless I do that, I will continue to be not able to give them a pass. SESNO: ElBaradei tells me negotiation is the only way to keep the future from spinning out of control. His formula, Iran must answer lingering questions about its nuclear program, allow more access to nuclear facilities, and suspend enrichment activities as the U.N. has demanded.

The west should be prepared to relax sanctions in return. The U.S. should tone down it's rhetoric and negotiate directly.

ELBARADEI: We need to call it. You know, I think we need to use all the tools of diplomacy. If you have just pressure without a valve, the pressure cooker will explode and that is my worry.

SESNO: While the Bush administration says Iran must stop enriching your uranium, ElBaradei sees it differently. He says part of the solution may be a deal that lets Iran keep some enrichment capability.

ELBARADEI: Maybe the outcome of negotiations, that after 10 years, we trust Iran the way that we trust Japan or Brazil or Germany that having a (UNINTELLIGIBLE) is no big thing because we know that you are going to use it for a peaceful purpose. The whole question starts and ends by trust or lack of trust.

(END VIDEOTAPE)

BROWN: With me now, former U.N. Weapons Inspector David Kay.

David, welcome.

DAVID KAY, FORMER U.N. WEAPONS INSPECTOR: Glad to be with you, Campbell.

BROWN: I have to ask you, do you trust this new intelligence assessment? The new NIE?

KAY: Well look, I have only seen, as most people, only the unclassified version which is data free, so you're just reading sort of the headlines. Before I would give it my trust -- and I have learned a few things after 2003 -- I would have to have my own opportunity to go over the data itself.

BROWN: Well, it did take five years to learn that they had stopped their weapons program. Do you worry at all that if in four years we could learn that they had restarted their weapons program today?

KAY: Well, I think that's true, and it's even in the -- in the report if you read it carefully, there's high confidence that it stopped in 2003. But there are dissents as to whether that stop was complete, including the Department of Energy and the National Intelligence Council itself, and there's only moderate confidence that in fact it's stopped right now along with knowing a number of things, including enrichment, including missile development is still going on. The real danger, of course, is that if in five years we learn that it restarted four years before. So this report should not give anyone great comfort.

BROWN: Well, I was going to say, you sound I think more skeptical than most people might think.

KAY: I have learned that if you approach intelligence with skepticism, you're not likely to be unpleasantly surprised.

BROWN: So how does an Iran with nuclear weapons frighten you?

KAY: The current Iranian state with the relations with the West? I think it is extraordinarily dangerous and frightening, not only to Americans, but more importantly to a number of states in the region.

BROWN: But as someone who has studied this as long as you have, what do you think the options are, especially given Iran's reaction, they're saying they see no reason to talk.

KAY: Well, I think right now there's a tremendous -- and this is really the good news in the report -- there's a tremendous opening if the United States will make it. The Iranian view is that sanctions on their enrichment came about because the world believed they had an ongoing covert program. We now say we know they stopped it in 2003. I think we ought to use this as a basis of a new diplomatic initiative.

Look, if we don't, we're going to end up with one of two rather unpleasant circumstances 10 years out from now. And that is either we'll have to have a major effort to deter a nuclear armed Iran or we'll have to consider again the costs and high risk of military action.

The good news of the report, we have eight years to begin the diplomatic work that has to be done.

BROWN: But given what you know of this administration, do you expect that to happen?

KAY: I would hope that it would happen and it really goes beyond this administration, it really goes beyond to the future of the Middle East itself and dire consequence for the United States. If we fall into a situation where we have not used these probably six to eight years we have to properly build a secure basis for peace in the region.

BROWN: David Kay, appreciate your time tonight.

KAY: Thank you, Campbell.

BROWN: Coming up, the political fallout for President Bush. How will this affect his legacy and the 2008 election? That's next.

(COMMERCIAL BREAK)

BROWN: Welcome back.

What does all of this mean for President Bush in the coming year and for the 2008 presidential elections?

Well, joining me now is David Gergen, who is in Boston, who has advised Republican and Democratic presidents; and also "TIME" Magazine Columnist Joe Klein, here with me in New York, who writes about all of this in the current issue of "TIME" magazine.

Welcome to you both. And let me get -- let me get both of your takes on this generally. And Joe, I'll let you start. The president's got to be thinking about his legacy right now. Does the NIE -- these new, you know, revelations, essentially give him an opening to make a huge grand statement? Or would you even expect that from him?

JOE KLEIN, "TIME" MAGAZINE COLUMNIST: Well, it's -- I don't expect it from him because he's a pretty stubborn guy. But what happened this week is an earthquake. It's the first time in my memory that the intelligence community got together and essentially said what the president has been telling you is wrong. That is devastating, I would think, to the Bush presidency. You know, I think there's a real possibility for an opening with Iran right now. I just don't know whether George Bush is the president to make that opening.

BROWN: and David, though, I have to ask, there are a lot of people who say that the NIE, this new and latest NIE, given the track record here, maybe can't be trusted either.

DAVID GERGEN, FORMER PRESIDENTIAL ADVISER: Well, that's true. And to be fair to the president, this new intelligence assessment is not only telling what the president has been telling you has been wrong, but what we've been telling you is that the intelligence agency has been wrong. They reversed themselves. And I think the president's rhetoric has been excessive.

But it was based on a notion that the agency, the intelligence people put forward back in 2005. They're the ones who reversed themselves.

I think he should have changed his rhetoric and I think he does have this opening. I totally agree with Joe Klein, he's not going to take it. They're dug in.

But what I do think is important, though, substantively -- this intelligence assessment means that George W. Bush cannot take the United States to war in Iran. That was a real fear. It was affecting oil prices. It was a quiet subject of intense conversation in Washington and elsewhere. That's not going to happen now. And it also means that his successor, very importantly will have some breathing room when that person takes office. There was going to be enormous pressure on that person -- on that person to possibly go to war with Iran or figure this out. Now you've got some breathing room for a diplomatic offensive.

BROWN: Look to 2008, Joe. Do you think the NIE, do you think the new information changes the equation for either Democrats or Republicans? KLEIN: Well, I think it hurts Republicans because most of them have been saber rattling pretty ferociously about Iran. Rudy Giuliani especially because he associated himself with neoconservative advisers who were in favor of bombing Iran. It also I think hurts on the Democratic side Hillary Clinton a little bit because she voted for a Senate resolution that was kind of bellicose against Iran. And it may well help Barack Obama a little bit because he's been talking about negotiating more than any of the other Democrats.

BROWN: Let me challenge you on that a little bit though, because do you really believe that NIE is going to change the minds of conservatives or people who supported Hillary Clinton's point of view who are now going to say wow, Iran is not the bad actor we thought Iran was?

KLEIN: No. You know, when you look at the NIE, you understand that the fact that Iran is still enriching uranium is a very serious situation. The fact that they're still supporting Hezbollah and other terrorist groups is still a very serious situation. But the public doesn't look much beyond the headlines and the headline here is that Iran isn't building nuclear weapons. And so in a grand sense, when you think about the independents who are the swing voters in this election, it's going to hurt I think the party that's been more bellicose about Iran and help the party that hasn't been.

BROWN: David, do you agree?

GERGEN: I do agree. I think the Republicans thought they had two big issues on their side that they could run on. One was going to be the threat from Iran, and the other was going to be threat of immigrants coming -- illegal immigrants flowing across the border. and I think this has taken that issue -- the Iranian issue off the front burner.

It's ironic here in the last few months, there were two issues -- foreign policy issues that were very much on the front burner. One was Iraq and one was Iran. You know, the good news on the surge has made Iraq less of an issue which was going to hurt Republicans. And now Iran, which was going to help Republicans, is also off the front burner.

I think that sort of clears the way -- I think that overall, this leaves the Democrats in a stronger position to take the White House if they get the right candidate and they mouth the right message, I think they're in a stronger position now to take the White House than they were 10 days ago and. And I -- so I totally agree with Joe Klein on that.

BROWN: All right, Joe Klein, joining me here in New York; and David Gergen, in Boston, thanks to both you. Appreciate it.

Well, we hope we have shed some light on these complicated issues. There are certainly no easy answers and they will be an ongoing challenge for President Bush as well as a challenge for our next president.

I'm Campbell Brown. Thanks for watching.

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